The Big Four and the Autumn Statement
Ahead of the Chancellor's Autumn Statement on 23 November, we take a look at the predictions being made by the Big Four on tax and the economy.
Business and Brexit
Since Budget 2016, the rather significant outcome of the EU referendum has diverted many of the plans set out by former Chancellor George Osborne and brought new priorities to the fore.
New Chancellor Phillip Hammond will likely attempt to soothe the concerns of the business sector by addressing Brexit and what measures are being put into place to protect their interests.
PwC Tax Partner Alex Henderson said: "We’re likely to hear more about business rates [for England & Wales] and perhaps some aspirations for the future, given the flexibility that the Chancellor may be expecting once we’re outside the European Union.
"Aspirations for the future are likely to include Britain Open for Business, making the economy dynamic and leading in the large economies, so attracting investment here."
Robin Walduck, Tax Partner at KPMG UK, added: “In-keeping with the Government’s aim to reinforce the UK as a leader in tech innovation, we may well see announcements to further encourage R&D and incentivise spending in this area.
"Particularly in the wake of the Brexit vote, the Chancellor will need to ensure any policies increase the attractiveness of the UK as a place to undertake R&D, commercialise the results, and support businesses investing in innovation to ensure that they continue to make their mark on the global stage.”
BEPS and corporation tax
The UK has taken a lead in changing the global corporate tax system with the implementation of several measures from the BEPS Project.
Deloitte's Head of Tax Policy Bill Dodwell said: “There has been consultation on limiting tax deductions for financing expense within large companies. The original plan was to introduce new limits from 1 April 2017, raising over £1 billion annually.
"Some businesses have asked the Chancellor to defer the introduction of the new rules until 2019, when the European Union introduces similar restrictions. We doubt that the Chancellor will agree – although we hope that changes will be made to make it clearer that interest paid to third parties should always qualify for tax deductions."
Former Chancellor George Osborne announced plans to reduce the UK's corporation tax rate to the lowest among the G20 nations in Budget 2016. A delay to this has also been requested by several businesses during the interim.
The original plan was to introduce new [tax deduction] limits from 1 April 2017. Some businesses have asked the Chancellor to defer the new rules until 2019.
However, as Laura Mair, Tax Partner and Head of Corporate Tax at EY, noted: “The Chancellor has said he intends to stick with the initial plan to cut corporation tax to 17% by 2020 rather than opt for the further reduction mooted by his predecessor.
"If he does have funds to spend, he could look beyond corporation tax to a reduction in the employment tax burden, such as reducing the rate of employer National Insurance (NI) contributions to offset the increase in the apprenticeship levy.”
Robin Walduck at KPMG UK commented: “Over the past year, a number of consultations on high-profile business issues have been released. These include the consultation on the deductibility of corporate interest expense, the consultation on corporation tax loss reform, and the proposed reform of the substantial shareholdings exemption.
"For companies, large and small, expectations are high that Government responses on these proposals will be forthcoming at the Autumn Statement."
Tax avoidance and evasion
The political drive against tax avoidance is expected to continue. Ben Wilkins, PwC People and Organisation Partner, said: "Based on the recent Conservative Party conference, we can expect changes that will be designed to help workers and increase fairness.
"We can expect to see a number of rules targeted at those perceived not to be paying their fair share. The crackdown on tax evasion and failed tax avoidance is likely to be continued."
Laura Mair at EY commented: “An update on this summer’s proposals to impose penalties on advisors is possible after the consultation on the plans recently closed.
"We can expect the Chancellor to reiterate the Prime Minister’s pledge that everyone must pay their fair share of tax. Individuals rather than businesses are likely to be the focus.”
The crackdown on tax evasion and failed tax avoidance is likely to be continued.
“Another high-profile consultation on strengthening tax avoidance sanctions and deterrents has raised significant commentary in the business community, in particular the proposal for potential tax-geared penalties for the enablers of tax avoidance schemes which are defeated," added Robert Walduck, KPMG Tax Partner.
"Many interested parties will be hoping for further commentary on developments in the proposals now that the consultation has closed."
In relation to tax evasion, HMRC recently sought views on the proposed offshore penalties framework in a consultation entitled 'Tackling offshore tax evasion: A requirement to correct', so further action here may be anticipated.
A Criminal Finances Bill was also recently introduced to the House of Commons with the inclusion of a new corporate offence of failure to prevent tax evasion. Under the provisions, a company or partnership will be found guilty of a crime if it fails to prevent an associated person facilitating tax evasion.
Pensions and income tax
Alan Brown, Tax Director at EY Scotland, said: "Tackling what it considers to be social injustice and an imbalance of wealth is a priority of the Government. Overall, the cupboard of options looks bare but measures under consideration may include an increase in the personal income allowance that is not passed on to those already in the higher tax bracket.”
Deloitte Personal Tax Expert, Patricia Mock, added: "The Conservative manifesto commitment was to increase the personal allowance and higher rate threshold to £12,500 and £50,000 respectively by 2020.
"A higher increase to help low earners is possible, although an increase of £1,000 per annum might cost around £3 billion."
The Autumn Statement may herald some measures that will not apply in Scotland. With the devolution to Scotland, with effect from April 2017, of the rates and bands of income tax for non-savings and non-dividend income The Scottish Government will announce the changes applicable to Scottish taxpayers on 15 December.
There seems a good chance that the Chancellor will move more slowly on pension reform than his predecessor.
Pensions have also had a changing landscape in recent years, with major reforms to pension tax, increases in state pension age, the abolition of contracting out, the introduction of auto-enrolment, the announcement of lifetime ISAs and the recent government U-turn on a new secondary market in pension annuities.
Ben Wilkins at PwC commented: "It remains to be seen if the Chancellor tinkers further with the ever-changing rules for pensions. We've seen reports in the press of radical changes to tax relief for pension contributions based on a person's age and marginal rate of tax, which suggests he is looking at this area."
Lynne Sneddon, Financial Services Tax Partner at EY in Scotland, is predicting caution from Phillip Hammond. She said: “The impact of removing tax relief from pensions for high earners has had a negative effect on saving rates and there are signs that the constant change of the last few years has damaged customers’ confidence in the system.
"There seems a good chance that the Chancellor will move more slowly on pension reform than his predecessor."
"For financial services in particular, clarity on any knock on effects on industry specific commercial issues will be actively sought," noted Robin Walduck at KPMG.
EY's Financial Services Tax Partner in Scotland, Lynne Sneddon, said: “The previous Government’s pledge to reduce the bank levy and restrict its scope to UK liabilities was welcome. The Autumn Statement gives the Government an opportunity to send a positive signal to the banking industry that the UK is open for business.
"Announcements might include an acceleration in the reduction of the bank levy rate, the narrowing of its territorial scope and a reduction or even abolition of the 8% surcharge for banks."
Making Tax Digital
ICAS has previously voiced reservations about the speedy implementation of HMRC's Making Tax Digital initiative. Some have identified the Autumn Statement as an opportunity for Philip Hammond to delay the roll-out to small businesses in 2018.
Patricia Mock at Deloitte stated: "We think that requirements for accounting software should not be mandated for several years. This is a huge change for 5.4 million small businesses and 1.5 million landlords and will add to their costs, as they have to buy new systems and potentially engage professional help.
"There are hundreds of different types of accounting software, much of which is designed for particular types of businesses. It is highly unlikely everything could possibly be in place for 2018.
“We hope that the Chancellor will acknowledge that changes are needed to a project of this scale – and say as much at the Autumn Statement. We would like to see a road-map from HMRC, acknowledging that information providers will need several years to prepare."
Last month, ICAS wrote to HM Treasury setting out policy suggestions for the Autumn Statement. These reflected demands from ICAS members for stability, certainty and significantly less change to the UK tax system.
Laura Mair of EY said: "The attractiveness of the UK is not just about the tax rate, but also the way tax is administered. HMRC needs to put more resources into the front line of dealing with taxpayers to counter the complexity of the current tax system.
"The Autumn Statement provides an opportunity to target additional funding for HMRC, with a view to strengthening its Customer Relationship Manager programme. It also offers the chance to support foreign direct investment and buy time while the Office of Tax Simplification seeks to untie the Gordian knot of complex legislation."
Autumn Statement Webinar: 24 November
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